A Home Of Their Own

4th July 2014

As this year’s crop of graduates make their way home from university to slip back into their old places at the family dining table, Jennifer Lipman looks at their prospects of ever having a home of their own

Britain’s housing market is back in business. In May, a Central London flat was sold for a reported £140m. Granted, it wasn’t your average property – a 6,000-square-foot penthouse overlooking Hyde Park – and it was a record sum. Still, it's part of a trend. In 2014, the only way is up when it comes to property prices.
According to Rightmove, London prices have shot up by an average of almost £80,000 this year. Around the country, the market is mostly buoyant, especially in southern England, with the national average price recently at £272,003, a record high.

“You normally find what happens in central London has a ripple effect in outer London,” says Colin, who works at a well-known Hertfordshire estate agent. “It's been an incredibly busy start to the year.”

Sellers may be gleeful, and commentators hail the recovery, but for those struggling to pull together a deposit on a one-bed bunker, it’s a different picture. And that's the prospect facing the majority, none more so than the demographic dubbed ‘generation rent’: the people – mostly young, often in well-paid industries – for whom the Thatcherite dream of home ownership is increasingly out of reach. While not an entirely new issue, with house prices racing ahead of wages and many young people having joined the workforce during the recession, it’s a growing problem, especially for anyone wanting to live within commutable distance of London.

“When I first started as an estate agent ten years ago it was a lot easier for first-time buyers,” agrees Colin. “The banks aren’t lending anywhere near as freely and the deposits required are a lot higher. And because the cost of general living has gone up, it's hard to save money.”

Halifax reported in April that almost six out of ten would-be buyers feel unable to save – hardly helped by their estimate that renting sets you back on average £1,488 a year more than owning. “It’s a vicious cycle, sighs Neil, a Leeds-born lawyer who moved to the capital after graduating.

“I grew up in London, and at 38 I’m still renting,” echoes Dan Hilton, director of campaign group Generation Rent. “I struggle to imagine being able to buy.” He quotes figures suggesting that nine million are now renting from a private landlord – many of them families.

Excepting those with help from the Bank of Mum and Dad, generation rent escapees are a rare breed. Official figures show that 26% of adults between 20 and 34 now live with their parents, up 669,000 on 1996. Shelter suggests that, on current trends, this could almost double by 2040.

For those that can, it’s the better option. “Had I been born in London, I would have lived with my parents until the last possible moment,” admits Neil. “Once I started renting, it hoovered up about half of my monthly net income.”

But with a job in London, he didn’t have the choice to stay at home, and nor do most of generation rent, who are diverting huge swathes of their salary to private landlords, or not making it to places where jobs are. According to KPMG, the housing problem is affecting their ability to attract talent. And, as Dan says, eventually “people will decide it’s just not worth working in London and that will harm the economy of what should be a leading global city”.

Not that London’s competitiveness is in jeopardy: there will always be those willing to struggle to live in desirable locations. Nevertheless, there are consequences for locking a generation out of the housing market, in terms of family planning and the wider economy.

For those stuck with mum and dad, it goes further than jokes about long-suffering parents and stunted adults who can’t cook or do their own washing. It affects retirement plans, and skews the market as the older generation delays downsizing, lowering the availability of family homes on the market.

And generation renters are not all fancy-free singletons, throwing up other consequences. Who would marry while still living with mum and dad? Likewise, renting is difficult enough as a childless couple; throw children in the mix and it becomes far more complicated. “It's having a big effect on everybody's life,” agrees Colin. He adds that ‘second steppers’ – usually families with young children – “are also finding it very hard to make that leap to a three-bed”, and cites an increase in “accidental landlords”: expanding families without the funds to upsize, who let their smaller property to fund rent on a larger one.

Down the line, this undisputed ‘landlord's market’ whereby only those who own property gain, is also a potential public services problem. As Halifax’s Mortgages Director Craig McKinlay warned recently, generation rent is unlikely to have property as a resource to draw upon during retirement.

“We’re used to pensioners having no housing costs because they own their home,” he said. “In 20 years, the fortysomethings who are stuck renting now will start knocking on the government’s door because they can’t afford to pay their rent with their pension, and the taxpayer will be looking at a huge housing benefit bill.”

Added to which, renting also means a generation more likely to be constantly on the move, making it harder for long-term planning of infrastructure like schools or hospitals – or the very homes that need to be built in the first place. For at the heart the issue is the need for a larger supply of affordable housing in the right areas. According to Shelter, we are building under half of the 250,000 new homes a year we need – pushing up prices and making it even harder for generation renters to buy.

And critics note that the expansion of the rental market isn’t helping. In parts of Hertfordshire, Colin points out, there is plenty of construction, but developers know that those with the money to buy new-builds are landlords with mushrooming property portfolios, not young families looking for their first home. “The return they're going to get is much better on flats than houses,” says Colin. “They're building too many two-bed flats but not enough houses”.

For generation rent, then, the picture is bleak. The issue is likely to be a major talking point as the 2015 election rolls on, with Ed Miliband having already proposed bringing in rent controls. “Miliband's announcements are the beginning of a bidding war between the parties for the votes of generation rent,” explains Dan. “All the major parties recognise this as a touchstone issue.”

Perhaps; although, as Neil sighs, “political awareness cannot pay a deposit.” The prospects are grim, in his opinion. “This will never go away,” he concludes. “I worry about the future for my own potential children.”

Others say we need to rethink our expectations. Halifax found that a fifth of 23-27-year-olds have no desire to own a home. “We may be heading towards the point where the aspiration to own a nice home will be replaced by the aspiration simply to live in one,” said McKinlay.

Colin admits that as the recovery sets in, banks will start lending again, making it easier for first time buyers, but points out that in America the majority rent. “Here everyone thinks it is so important to have your own house,” he says. “We may have to move towards an American mindset because I can’t really see the market changing.”

Until then, he says, it’s set to remain “very difficult indeed for first-time buyers, unless you're in the fortunate position where you’ve got help, you're earning a large income or you get a large bonus… or,” he says dryly, “there’s winning the lottery…”